Germany subsidises cheap electricity for neighbours

Generous subsidies have boosted renewable electricity generation, and created a German green power glut. But Germans themselves do not see lower prices, which are restricted to the wholesale market – in fact the opposite. Instead it is their neighbours whose bills benefit thanks to cheap imports from Germany.

When Chancellor Angela Merkel's government accelerated the nuclear exit in 2011 and set the country on a course to switch to renewable energy, some experts warned that there would be power shortages as a result.

But power trade statistics from the biggest electricity market in Europe not only dispel this notion, they also show that German households subsidise power supplies elsewhere.

"The Germans have taken on a disproportionate share of the high cost of renewables via the support payments," said Kornelis Blok, director of science at Dutch consultancy Ecofys.

"These leave a burden on the household price. So who is in fact paying for cheap Dutch power? It is the Germans."

Despite its nuclear exit, Germany remained a large exporter of electricity in 2012, especially to the Central West Europe (CWE) market region of France, Benelux and Germany and into the Alpine states of Switzerland and Austria.

Germany exported 67.3 billion kilowatt hours (kWh) of power last year compared with 42.8 billion kWh of imports, data issued by the federal statistics office and the industry statistics group AGEB show, although they say that this includes transits and non-commercially traded volumes arising from grid balancing.

Wholesale power prices in Europe's biggest economy have dropped by over 32 per cent in the past two years, pulled down largely by a flood of subsidised new solar power generation that has not been equalled in neighbouring markets.

German solar power producers added 31 per cent more capacity in 2012 to arrive at 32.4 gigawatt of capacity at the end of the year.

"German power prices have decoupled from other central European markets, such as France, the Netherlands or Belgium, likely on the back of strong growth in solar capacity," Bank of America's Merrill Lynch said in a research note.

The equivalent French price has dropped around 27 per cent, while Dutch prices are down less than 20 per cent, according to Reuters data.

Germany's cheap wholesale power prices make them attractive for exports. The German export figure is equivalent to what eight conventional power plants generate in a year.

The Netherlands were the biggest recipient of German electricity, with 22.6 billion kWh (two and a half power stations), followed by Austria's 15.1 billion kWh (two power stations), and Switzerland's 12.7 billion kWh which equate to the annual output of one and a half large power stations.

The rest of German electricity exports largely went to France, which also supplied large amounts of power back to Germany.

German retail power customers have already seen their bills rise by over 12 per cent since the beginning of the year, with the share of renewable subsidies and other state charges in their total bill now at 50 per cent.

Merrill says that the trend of decoupled and lower German prices is not seen coming to an end as it expects more renewable capacity to be added to the system until the laws are changed.